Reconstruction of Ukraine: how state, external and public control is carried out

Rebuilding Ukraine during and after the war requires coordinated efforts of organisations involved in the reconstruction process. Reconstruction is a complex and multifaceted process that requires effective control and management. It must also be accountable, transparent and based on the needs of communities and regions.

Both national and international institutions act as oversight bodies, each with a specific role and contribution to accelerate recovery.

Internal (state) control
On 13 January 2023, Ukraine established an institution responsible for implementing the country’s reconstruction projects – the State Agency for Reconstruction and Development of Infrastructure.

Who controls the finances?

In October 2022, the Verkhovna Rada voted to establish a separate Fund for the Elimination of the Consequences of Armed Aggression. It operates within the State Budget and is filled with funds received from the forced seizure of Russian Federation property in Ukraine.

In February 2023, the Parliament transferred control over the Fund’s budget programme to the Ministry of Communities, Territories and Infrastructure of Ukraine. Previously, it was the responsibility of the Ministry of Finance.

In 2023, the Fund plans to attract and use about UAH 35.5 billion in accordance with the current version of the State Budget. But in fact, there is a forecast that the Fund will be able to raise more money – about UAH 52.5 billion, if we take into account the balance of funds from 2022.

To monitor the receipt and use of the Fund’s resources, the Treasury is required to submit monthly reports to the Verkhovna Rada, the President, the Cabinet of Ministers, the Accounting Chamber and the Ministry of Finance.

The Fund for the Elimination of the Consequences of Armed Aggression must comply with the rules of the Budget Code of Ukraine, and there are bodies that control its activities:

The Accounting Chamber is also working to ensure transparent use of state budget funds for Ukraine’s recovery. It has recently received support from the US Government Accountability Office.

For 2023, the Accounting Chamber has identified 70 activities, 26 of which are related to the country’s recovery. Also, the results of the analysis and other studies of the Accounting Chamber may affect the control over the reconstruction process.

The procedure for the use of the Fund’s resources stipulates that regional state (military) administrations may submit requests for the allocation of funds from the Fund to the relevant ministries. They, in turn, review the applications, summarise the proposals and submit them to the Ministry of Finance. It is important that projects take into account the needs of the population.

Funds are allocated by a decision of the Cabinet of Ministers, and the working group prepares proposals for their distribution.

Budget managers monitor how the Fund’s resources are used and provide information on their use, as well as on the status of projects and unpaid obligations to the main budget manager by the 10th of each month. By the 15th of each month, the key spending units submit reports to the Treasury on the use of the Fund’s finances.

On the basis of these reports, the Treasury prepares a monthly report on the receipt and use of funds and submits it to the relevant authorities, including the Verkhovna Rada, the President, the Cabinet of Ministers, the Accounting Chamber and the Ministry of Finance.

In addition to the Fund for the Elimination of the Consequences of Armed Aggression, there are 6 other funds established by the Government of Ukraine:

There is also the UNITED24 platform, which raises money for various needs, such as defence and demining, medical aid and the reconstruction of Ukraine.

Who identifies and records the damage?

As of December 2022, about 150,000 houses were damaged or destroyed by Russian shelling. This means that more and more housing infrastructure needs to be repaired or completely rebuilt.

To record the damage from the war, the Government has established a procedure for determining damage and losses. Information about the destruction is collected and included in the Register of Damaged and Destroyed Property. The Ministry of Infrastructure is responsible for it, and the administrator is the State Enterprise “Diya” of the Ministry of Digital Transformation.

The Ministry of Regional Development is also launching an initiative to create a Geographic Information System for monitoring and evaluating the development of regions and communities. The system will contain a database that will help to take steps to eliminate the consequences of the war and rebuild Ukraine. It will help determine the need for financial resources to restore infrastructure in various regions, districts and communities affected by Russian aggression.

The issue of their interaction to avoid duplication of work and ensure coordination remains relevant.

The Government also adopted a draft law that allows citizens to receive compensation for destroyed or damaged property. For this purpose, special commissions should be set up in local councils and administrations of settlements.

However, the law does not provide clear guidance on how many members a commission should have, what powers they have, and how their decisions can be appealed. The responsibility for approving the rules of operation of the commissions lies with the executive bodies of local councils and administrations, and their actions must be approved by the CMU.

Who controls procurement?

After the outbreak of the full-scale war, the government adopted several resolutions concerning public and defence procurement. Starting from 24 February 2022, the number of published procurements and the number of competitive offers began to decrease.

In October 2022, a resolution was adopted that brought back the practice of procurement planning and allowed the conclusion of direct contracts. Procuring entities must report on them if their value is equal to or exceeds UAH 50 thousand. No reports are published for procurements for smaller amounts.

In February 2023, the resolution was amended to increase the competitiveness of procurement and increase transparency. Procuring entities can no longer make purchases without using an electronic system if there are sufficient grounds for competitive procedures. The text of contracts and all their annexes must be published, and tender documents must include qualification criteria for all open tenders.

In the first two months of 2023, 578,000 procurements worth UAH 149 billion were published through the PROZORRO system, and the share of competitive procurement increased to 46%.

It is also important to note that procurement related to defence needs can be carried out without competitive procedures during the period of martial law, but after the procurement, contracting authorities are obliged to publish a report on it within 180 days after the termination of martial law.

There is a need to improve the procurement system so that it is adapted to the martial law period and has fast, transparent and competitive procedures. The Antimonopoly Committee of Ukraine also faces a problem with obtaining sufficient information to conduct effective inspections.

Who controls construction works?

Construction control is a way to inspect construction projects, issue work permits, and make sure that everything complies with rules and standards. The process also helps to identify and correct violations.

Since the beginning of russia’s full-scale invasion in Ukraine:

• The State Inspectorate of Architecture and Urban Planning was established to oversee the process;
• simplified procedures for obtaining construction permits under martial law were introduced;
• it is allowed to start designing if the local authorities do not provide conditions within 10 days, followed by obtaining a permit;
• the issuance of permits depends on the results of the project’s examination and review of documentation;
• for the period of martial law and within a year after its termination or cancellation; construction of buildings up to 500 sq m in area without a construction passport is allowed;
• the postponement of works on landscaping and facade decoration is allowed.

But there are also certain risks that cause discussions and concerns:

• notaries are engaged in the registration of real rights to real estate, but cannot always check documents for compliance;
• private controllers can be unlawfully registered without appropriate control and response to citizens’ appeals;
• monitoring of construction by local governments with limited access may also not provide effective control.

Control by international donors

International donors are currently providing Ukraine with huge amounts of financial assistance. And each of them can take its own measures to control the funds.

In 2022, the US Congress allocated more than $113 billion in aid to Ukraine.

In June 2022, the supervisory staff began holding monthly meetings to coordinate activities in Ukraine. The Congress also allocated $42 million for U.S. oversight.

At the end of January 2023, an Interagency Oversight Working Group was established to oversee the use of the funds provided to Ukraine, which included representatives from various US agencies.

As of 31 January 2023, the US Department of the Treasury reported that it had no evidence of misuse of the funds provided to Ukraine. However, it is important to continue to ensure that reliable safeguards are in place to prevent corruption.

In September 2022, the German Marshall Fund created a document on Designing for Ukraine’s Recovery in the Spirit of the Marshall Plan. It provides important advice on how to use aid effectively and monitor its use.

The main idea is that Ukraine should be responsible for its own reconstruction, but donors (i.e. the US and other countries) should approve the plans and control how the money is used. In addition, aid should be transparent and time-limited, with the main goal of supporting Ukraine’s economic integration with Europe.

This will help ensure the effective use of humanitarian aid and contribute to Ukraine’s recovery and modernisation.

In May 2022, the EU presented the RebuildUkraine Facility as a fundamental tool to support Ukraine’s recovery from the war.

European Commission President Ursula von der Leyen said that investments “go hand in hand with reforms that will support Ukraine on its European path”. This means that the money will not just flow in, but will depend on the successful implementation of changes in the country that will help move forward with European integration.

In particular, the RebuildUkraine Facility places great emphasis on good governance, respect for the rule of law, sound financial management, and the fight against corruption and fraud. These measures are aimed at ensuring transparency and accountability in the implementation of the plan and helping Ukraine recover from the war.

In April 2022, the World Bank published an assistance plan for Ukraine’s recovery in the short and long term.

In terms of oversight, the report does not provide specific details on mechanisms, but notes that technical support is needed to strengthen anti-corruption bodies and improve the judiciary to make it professional, fair and just.

While the plans that have been presented do not fully coincide with the vision of the Ukrainian government, there is a common desire to strengthen Ukrainian institutions, make public data transparent, reform law enforcement agencies and synchronise practices with the EU.

Public control

It is important that public scrutiny is present at all stages of Ukraine’s recovery. This means that the public needs to be able to see how projects are planned and implemented, as well as monitor their implementation.

According to a study by Transparency International Ukraine (TI Ukraine), in many regions of Ukraine, information about the recovery has not been fully published. Only slightly more than 25% of the required data has been published on the state open data web portal. Updating information on the location of civil defence structures is particularly problematic.

DREAM, a digital recovery ecosystem for responsible management, can provide some assistance in monitoring recovery. The system collects, organizes and publishes open data at all stages of reconstruction projects in real time, implementing the highest standards of transparency and accountability.

Transparency and accessibility of information, as well as active public participation in oversight, are important factors for the successful reconstruction of the country after a difficult situation.

Conclusions

In Ukrainian legislation, three concepts are often confused: “control”, “monitoring” and “supervision”. The law provides for control mainly for the tax and customs authorities, but in reality, many executive authorities have controlling powers in various areas.

Ukraine still lacks a clear, coherent state approach to the organisation of reconstruction, and control systems and mechanisms are not fully developed.

Institutions and legislative initiatives involved in reconstruction are mostly limited to monitoring and reporting, without the ability to respond to identified problems. Also, some state control measures were suspended during the martial law period.

The money earmarked for recovery is used by different funds, making it difficult to monitor its use and effectiveness. Therefore, it is necessary to strengthen the institutional capacity of the authorities that control the use of recovery funds.

Compensation for damages to citizens for destroyed property can be decided by special commissions, but the law does not provide for the possibility of appealing their decisions.

The rules in the procurement sector have also changed, making it more difficult to monitor bidding and procurement.

Thus, public scrutiny of Ukraine’s recovery is to some extent limited by the lack of information and data.